Choosing an ethical fund
The score table above ranks 19 of the biggest ethical fund managers in the UK against Ethical Consumer’s usual criteria. We have deliberately ranked the same companies as those covered in the ShareAction 2012 ranking.
It should be noted that Royal London bought The Co-operative Investments in July 2013 as part of its purchase of CIS (Co-operative Insurance Society) which no longer has anything to do with the Co-op Group.
Each fund manager will, on average, run three or four slightly different ethical funds. In addition there are other ethical funds not included in this report – and we cover a couple of newer ones at the end. This all adds up to around 75 possible ethical funds. There is not enough space here to give you all the information you need but we can point you in the right direction where it matters.
There are three main areas you will want to explore before choosing an ethical fund:
1. What are its investment criteria?
Different funds have different negative screens (such as no tobacco or armaments) and positive criteria (such as healthcare or renewable energy) to guide their investment decisions. The EIRIS guide gives a brief overview of funds’ policies on particular issues.
Once you’ve spotted one or two funds that look interesting, you will want to visit their website or call them to look in detail at their prospectus, because criteria change, funds come and go, and the details are more complex than a table can display.
While you are there, you may want to look for a full list of fund shareholdings, to see what a fund’s criteria mean in practice. Some ethical funds will contain shareholdings of controversial multinationals – such as BP or GlaxoSmithKline – and you need to be comfortable with where your money is invested. Although a list of shareholdings will change over the course of a year, ShareAction is quite right in arguing that the days when just a top ten shares list was enough are now gone. You now need to look at a full list.
2. What is the company behind the fund like?
Even though a company offers an ethical fund, it is likely to run a lot of mainstream funds too. With the exception of WHEB, a specialist sustainable investment team, all the companies on the scoretable do this and will follow the traditional investment mantra of spreading risk across all sectors. We have checked their shareholdings and indeed, pretty much the whole table could be filled with marks in every column because of this.
What we have done in this case, is to not apply these investment marks where a company has evidenced best practice at stewardship & engagement through a high rating in the ShareAction ranking.
3. What is its financial performance?
We have included a fund performance table using moneyfacts.co.uk data here. All the fund mangers in this guide are represented except for WHEB which has not been established long enough yet to have 5 years of performance data.
It should be noted that some ethical funds are designed to produce an income and others for capital growth. It should also be noted that you can sign up for most ethical funds using a ‘stocks and shares ISA wrapper’ – which always improves performance assuming you have not used up your annual allowance already. These are the kinds of areas that an Independent Financial Advisor (IFA) may be able to help with (see our guide to Choosing an IFA).
One of the innovations of the last few years is the opening of online fund investment platforms. Indeed some of our recommended IFAs offer an online investment service (e.g ethicalmoney.org ) via the Cofunds platform. For those confident enough to invest in this way, it is possible to top up funds at any time, often with quite small amounts (e.g. £50), and to otherwise buy and sell investments there.
For those still happy with the Co-op Bank, its Smile Fund Supermarket platform has also received favourable reviews.1
New regulations due in April 2014 about charging commission will affect the way the platforms work in the future – with possible user charges being introduced.2
Other funds to note
Triodos: In April 2013, Triodos launched two ethical funds onto the UK market. Although containing the usual (best of sector) mainstream stock such as VW and Nike, Triodos’s excellent transparency and engagement policies would be likely to get them a best rating in the ShareAction review. Triodos is a Best Buy in our Savings Accounts and ISAs guides.
ConBrio BEST Income Fund: Billed as one the UK’s only funds excluding gas, oil and mining, this fund offers investors some confidence that these activities will be avoided.
The Rathbone Ethical Bond fund is offered by Rathbone Unit Trust Management.
Rathbone Unit Trust Management is owned by Rathbone Brothers plc.
Like many of the companies mentioned in the guide Rathbone Brothers plc had shareholdings in several companies criticised by Ethical Consumer for their environmental and social performance.
These included GlaxoSmithKline, Amazon, General Electric, Monsanto, Shell and McDonald’s.
Rathbone Brothers plc was also one of several companies that received a worst rating for likely use of tax avoidance strategies.
See detailed company information, ethical ratings and issues for all companies mentioned in this guide, by clicking on a brand name in the score table.
This information is reserved for subscribers only. Don't miss out, become a subscriber today.